The Importance of Honesty When Filing Bankruptcy
Filing bankruptcy can provide financial relief for struggling debtors and can give those overwhelmed by debt a fresh financial start. But before you decide to file bankruptcy, make sure you understand the importance of being 100% honest when filing bankruptcy. Your bankruptcy case could be thrown out by the court and you could face serious criminal penalties if your bankruptcy filing contains incorrect information - here's how to make sure you've got it all right when filing bankruptcy.
Honest Mistakes When Filing Bankruptcy
First of all, don't panic. If your bankruptcy petition contains a couple honest mistakes or oversights, you'll be given a chance to correct them and explain to your bankruptcy trustee what happened. But this doesn't mean you can fill out your forms carelessly - check everything over before filing a bankruptcy petition.
"Complete & Accurate" Information
- Accuracy in filing bankruptcy: When you file bankruptcy, you'll have to verify with your signature that the information on your forms is "complete and accurate" to the best of your knowledge. Putting your signature on that page means you can be charged with perjury (lying under oath) if it's discovered that you lied - or misstated information - on the forms.
- Completeness in filing bankruptcy: You can't leave anything out when filing bankruptcy. You're expected to list all of your property, income and debts. Excluding any of these is as bad in the eyes of the bankruptcy court as putting incorrect information on your forms when filing bankruptcy.
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So what makes the court suspicious in a bankruptcy filing?
Extensive mistakes and/or omissions in your forms can read as carelessness and might lead the court to dismiss your court case on the grounds that you've shown "indifference to the truth." If the court thinks the "mistakes" are intentional, you could be charged with bankruptcy fraud, which is a serious crime.
Disputed Debts in a Bankruptcy Filing
Part of reporting your debts "completely" when you file bankruptcy means reporting those debts you don't think you owe (but a creditor does). Rather than leave out such debts, simply list them as "disputed." If you're in the middle of a lawsuit concerning a debt, list that debt as well, as "contingent," meaning your responsibility to pay depends on the outcome of the suit.
If you're unsure how to label any of your debts when filing bankruptcy, ask your bankruptcy lawyer for specifics.
This may seem like a drag, but consider this: you can't receive a discharge for debts you don't list when you file bankruptcy. Plus, if you're discharged from a disputed debt, you don't have to worry about fighting your creditor any longer - the bankruptcy discharge protects you from collection action.
No Room for Playing Favorites When Filing Bankruptcy
Some bankruptcy filers find themselves tempted to omit creditors they like - like friends or business owners they know - so that they can pay those people back in full. While this may sound tempting, leaving out any creditor is considered bankruptcy fraud.
As your bankruptcy lawyer can tell you, bankruptcy works by distributing your assets fairly among your creditors; that is, the biggest share of your money will go to whomever you owe the most (not your dear old auntie who helped you with rent).
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Plus, if the bankruptcy court discovers that you didn't include all your creditors, it could become suspicious about the truthfulness of the rest of your petition.
Include Assets You're Expecting
If you're set to receive money or property in the coming months (because of a lawsuit settlement, an inheritance, a pension, a retirement fund, etc.), you need to mention it when you file bankruptcy. Your bankruptcy lawyer can help you figure out how to list such assets on your forms when filing bankruptcy.
While some such assets may be exempt, the bankruptcy court needs to be aware of any and all wealth you expect to receive to get a more complete understanding of where you stand financially.
Penalties for Lying when You File Bankruptcy
If you intentionally use a false Social Security Number on your bankruptcy forms or misstate/omit information when you file bankruptcy, the penalties you'll face will probably be much worse than the debt you're currently dealing with.
- Jail Time: The maximum penalty for bankruptcy fraud is five years in federal prison.
- Fines: The maximum fine for bankruptcy fraud is $250,000.
If you're filing bankruptcy honestly to relieve yourself of unmanageable debt, you shouldn't have to worry about these penalties. But you may want to work with a bankruptcy attorney to make sure your forms meet the standards of accuracy and completion demanded by U.S. Bankruptcy courts.